Earlier this week, we evaluated whether Davis was in compliance with the Palmdale decision that invalidated the water rate structure of the City of Palmdale, based on a ruling from the Second District Appellate Court of California. The court found their rate structure failed to comply with the mandates of Proposition 218 and its “proportionality requirement which specifies that no fee or charge imposed upon any person or parcel as an incident of property ownership shall exceed the proportional cost of the service attributable to the parcel. Accordingly, we reverse the judgment.”
Some believed that the problems of Palmdale were, in fact, unique to Palmdale because “in this instance, the District failed to demonstrate that the proposed budget based rates for one customer class were proportionate to the cost of providing water service in violation of Proposition 218.”
At the same time, we noted that the decision did not invalidate tiered rates. The court decision, in fact, specifically allowed for tiered rates that were both budget-based and that promoted water conservation, but only if that conservation is attained in a manner that “shall not exceed the proportional cost of the service attributable to the parcel.”
Naturally, the City Attorney Harriet Steiner believes that the current rates, adopted prior to the Palmdale decision, meet current legal standards.
The Vanguard calculated the rates at given usage levels into a spreadsheet by adding the fixed costs at a given meter size to the variable rate usage.
Click on the chart below to enlarge
What we find is that the rates appear to be relatively proportional and in compliance with Prop 218 requirements, and nothing about this rate chart jumps out as being odd.
At the low levels of usage, the relatively small fixed costs of both single family and multifamily users are advantaged.
Naturally, we would not expect large metered users to use low levels of water, and once they move toward expected uses, the fixed costs even out. Nor would we expect single-family or even multifamily users to use more than 37 and certainly not more than 50 ccfs per month.
What is striking about this chart is there is clearly no kind of subsidization of rates or usage from one class to another.
Parity and proportionality clearly occurs as the rate class moves toward its expected usage.
So, as we said at the outset, nothing in the current rates suggests that there is any kind of subsidy or disproportionality of charges.
Doug Dove from Bartle Wells Associates presented the preliminary discussion on the rate study to the Water Advisory Committee last Thursday.
He declined to comment on the current structure, but said, “I feel confident that the Palmdale case resulted from some poor rate analysis and some poor decisions that were made by the district during the rate study process and also looking at the rates that were approved, it’s pretty obvious that you can argue that they were not proportional.”
The meter size is largely what is driving the difference in fixed costs. As Dennis Dove put it, while the “water is essentially the same… sometimes people need a lot of more of the water at a single time than other people – in other words a peak, so that can influence the cost of water.”
“I think it’s pretty clear that tiered rates are legally on solid ground. I think water budgets are legally on solid ground,” he continued. “It’s a matter of applying those proportionally to the different user classes.”
He argued that in Palmdale they “basically weren’t being proportional or fair.”
We simply do not see that here, once we calculate out the city’s rates at each level of usage.
The question is, going forward, whether we will design the water rates with a mind toward Palmdale and the proportionality requirements of Prop 218.
One of the questions will be about water budgets.
Mr. Dove believes this will not be a problem: “In the rate making community there isn’t a feeling that the water budget concept is at risk by the Palmdale decision. What happened in Palmdale is a bad rate structure and it didn’t withstand the court challenge. But it wasn’t the underlying water budget concept of the rate, [that] was not at fault. It’s still a sound concept.”
The discussion will be brought up at a future meeting date and the request was made by the WAC to have an attorney other than the city attorney advise the group.
Michael Bartolic argued, “If we do have a discussion on Palmdale could we please have an informed water lawyer provide that presentation under consultation to the city? I feel it needs more – the city attorney already advised the council in August, in September, and in December and no change was made in our rate structure by the city council based on her advice. So I don’t feel we’ll get anything other than a canned response.”
Staff assured the committee that the lawyer coming would be a water lawyer who specializes in Prop 218 issues.
Based on this analysis, it appears that no court would look at the current City of Davis rates and argue that they are out of line with fairness or proportionality.
—David M. Greenwald reporting
Well, we would be wise to look at the diversity and robustness of the water supply of Palmdale a community built on Mojave Desert yucca plants. You need to wonder why they are so smart and Davis is so dumb.
http://www.palmdalewater.org/WaterSource.aspx
Toad: What does that have to do with whether the rate structure is in compliance with Prop 218?
Not much but all this talk about Palmdale vs. Davis made me curious about where they get their water and its looks very much like what we should be doing, as far as water goes, while we spin our wheels generation after generation, trying to do things on the cheap.
Good article DMG!
This is key:
[quote]The meter size is largely what is driving the difference in fixed costs. As Dennis Dove put it, while the “water is essentially the same… sometimes people need a lot of more of the water at a single time than other people – in other words a peak, so that can influence the cost of water.”[/quote]
Moving forward, the WAC will be sure to take into account the Palmdale decision and the proportionality requirements of Prop 218 when recommending rate structures.
David,
Your article is very interesting and thoughtful. I reach a different conclusion.
I still believe that the Davis residential class heavily subsidizes commercial, and the irrigation class.
I went to the City web site, and here is the table from the rates section of the water code:
39.03.045 Schedule of metered rate charges.
For water used beginning September 1, 2010, the bi-monthly water consumption charge for all metered rate customers shall be as follows:
User Classification
Use Tiers
Unit Charge
Single Family Residential
Tier 1: 0-36 ccf
$1.50
(use per dwelling unit)
Tier 2: >36 ccf
$1.90
Multifamily Residential
Tier 1: 0-14 ccf
$1.42
(use per dwelling unit)
Tier 2: >14 ccf
$1.90
Small Commercial/Industrial
Tier 1: 0-115 ccf
$1.41
(use per account)
Tier 2: >115 ccf
$1.90
Large Commercial/Industrial
Tier 1: 0-619 ccf
$1.51
(use per account)
Tier 2: >619 ccf
$1.90
Irrigation (use per acre)
Tier 1: 0-363 ccf
$1.41
Tier 2: >363 ccf
$1.90
Municipal Water Usage
All consumption
$1.41
**************
The City charges the classes differently, and I cannot believe that a gallon of water delivered to my small office commercial next door to my home costs less than my residential account.
You can go back and forth about those pipe sizes, etc, but the burden is on the City to prove proportional costs data, and I just dont see it.
(BTW, I have built or replaced the pipes to the office, and to residential, and I PAY FOR THAT PIPE AND THE HOOKUP, not the City.
So I respectfully disagree with your conclusions as stated in the article.
I suppose this is going to have to wait a bit for the rate study and some WAC analysis.
Also: remember, the same people who tried to give you the bogus rates in September and ram through the surface water plant are still in power, still working to influence public opinion, still staffing and trying to get certain conclusions out of the WAC, and still churning and billing their hourly files. At this point, I think the data show a lack of need for the surface water plant, and disproportional, unconstitutional rates that have been in place for years.
Matt and ERM: there you go. You guys are always banging on me to provide data, data, data. Well, it’s been in front of your faces all along. I assume you can read the Constitution and the City’s water rates without duplicative posting here?
David, I don’t think you have the data to draw any conclusions, particularly between commercial and residential, since we don’t know how much water the different classes and sub-classes are using, and we don’t even really know when they are using it. Most water for residential is irrigation, and people can irrigate overnight when evaporation is less with simple timers, if they will be able to afford to irrigate at all (I am very worried for the health of the streets trees and hope we can eventually irrigate with gray water).
Also, the issue to me is not the current rate structure before Palmdale was published and before rates are being raised about threefold. I will wait until the Water Advisory Commission gets the data they need to actually examine proportionality.
[quote]Matt and ERM: there you go. You guys are always banging on me to provide data, data, data. Well, it’s been in front of your faces all along. I assume you can read the Constitution and the City’s water rates without duplicative posting here?[/quote]
I didn’t ask you for data, I GAVE you data. Secondly, in your analysis above, you have [b][i]conveniently[/i][/b] left out the FIXED rate portion of the costs. You cannot base an analysis on only SOME of the data.
[quote]You can go back and forth about those pipe sizes, etc, but the burden is on the City to prove proportional costs data, and I just dont see it. [/quote]
You cannot leave out an entire variable in an equation, and have the equation be meaningful!
I mean: I will wait until the Water Advisory Commission gets the data they need to actually examine the proportionality of the proposed rates. Current rates are of no interest to me.
Establishing fixed rate by pipe size doesn’t answer any questions unless we know the amount of water used by each class and by each subclass.
Sue: The chart takes into account water use and calculates the cost at the various levels of use.
Mike: Elaine is correct, you cannot take fixed costs out of the equation because they are a huge part of the equation. When you look at the rates themselves isolated from the fixed costs, it look disproportional and unfair. Once you factor in the fixed costs, everything works.
Moreover you create a strawman when you argue that the same people who brought us September 6 brought us the current rates. That’s not exactly true. The person who created the rates on September 6 did not create previous rates. I’m not sure that the rates of September 6 were illegal so much as illogical and dishonest.
“Establishing fixed rate by pipe size doesn’t answer any questions unless we know the amount of water used by each class and by each subclass.”
That’s correct, that’s why there is a portion of the chart which says “costs at the variable usage levels.” That tell us at a 10 ccf of water usage is and what it is at each of the levels and then we can track to see what the user classifications would pay based on their rate, what tier they are in, and the fixed rate.
David: I guess we will just have to disagree until further study.
Michael Harrington said . . .
[i]”Matt and ERM: there you go. You guys are always banging on me to provide data, data, data. Well, it’s been in front of your faces all along. I assume you can read the Constitution and the City’s water rates without duplicative posting here?”[/i]
Michael, I think you may want to contact your doctor to schedule a test for Alzheimers. You made this same point on Saturday and I answered it then (see below).
As Jaime Escalante said, “We will go step by step, inch by inch. Calculus was not made to be easy. It already is.”
Step 1: A water rate schedule is made up of one or more of the following components, a) Fixed rates and B) Consumption rates
Step 2: For a water rate schedule that includes both A) and B), any conclusions about the rate schedule must by definition include the combined effect of both A) and B)
Step 3: A combined analysis of A) and B) for the current Davis water rate schedule looks like David’s spreadsheet above, wich shows the combined effect of A) and B).
For the record, here is the step by step post I provided you on Saturday. Hopefully it will jog your memory.
[i]”Matt Williams
02/25/12 – 11:59 AM
…
Don Shor said . . .
“The city water rates are posted on the city web site:”
Michael Harrington said . . .
Michael Harrington
“The Davis rate structure has long favored our homes subsidizing the commerical class users. I am not making a value judgment; it’s just a straight fact of Davis political life.”
Don and Michael, both of you have fallen int what I will call the “Paul Harvey trap.” Specifically, you are only looking at a portion of the whole picture. So as Paul used to say in his radio broadcasts, “And now here is the rest of the story.”
The City website Don has provided only shows the Consumption potion of the rates . . . and indeed when you compare the Single Family Use Tier values shown to the Commercial Use Tier values shown, Michael’s statement has every appearance of being true. However, to get the “rest of the story” you need to combine the Consumption portion with the Fixed Charges portion of the rates.
Looking at the Fixed portion Single Family use incurs a Bi-monthly Total Fixed Charge of between $27.92 and $72.18 (depending on Meter Size), while Commercial use incurs a Bi-monthly Total Fixed Charge of between $72.18 and $1,020.28 (depending on Meter Size). So if you make the conscious decision to only look at the Fixed charges the following statement is true:
“The Davis rate structure has long favored our commerical class users subsidizing the residential class users. I am not making a value judgment; it’s just a straight fact of Davis political life.”
However, when you combine the Consumption Rates and the Fixed Rates together, virtually all “subsidization” goes away, and in fact it is unclear if there is any subsidization, exactly what class is being subsidized and what class is doing the subsidizing.
That Michael is the whole picture, which you have conveniently chosen to overlook.”[/i]
Michael Harrington said . . .
[i]”You can go back and forth about those pipe sizes, etc, but the burden is on the City to prove proportional costs data, and I just dont see it.
(BTW, I have built or replaced the pipes to the office, and to residential, and I PAY FOR THAT PIPE AND THE HOOKUP, not the City.
So I respectfully disagree with your conclusions as stated in the article.
I suppose this is going to have to wait a bit for the rate study and some WAC analysis.”[/i]
Michael, the sizes described are the meter sizes. All of us have paid for the pipes that are external to the meter and deliver the water to our property. However, I don’t know of anyone who has paid for the meter itself. That expense is the City’s not the property owner’s.
Can you provide us with a receipt that shows you paid for the meter?
[b]@David Greenwald:[/b]David, you would have to know how many units of water each class and subclass uses to know whether or not the fixed rate compensates for the favoritism in variable rates.
I disagree Sue, we only have to know what they would pay at a given usage and compare it to whatever classifications pay at the same level of usage.
Great logic, David. So you think that proportionality is satisfied if we can show that if a single-family household used as much water as a large factory, they would be paying the same amount as a large factory?
Sue Greenwald said . . .
[i]”Establishing fixed rate by pipe size doesn’t answer any questions unless we know the amount of water used by each class and by each subclass.”[/i]
Sue, the one question that meter size does answer for each water connection is how much the “guaranteed” money will be on each account’s bi-monthly bill. Even if the account uses zero ccf the fixed rate is billed and due.
Your point that various levels of water usage produce different consumption rate dollar values is absolutely right, but bottom-line the dollar amount of the total bill is what the check amount is when the bill is being paid.
Sue Greenwald said . . .
[i]”Great logic, David. So you think that proportionality is satisfied if we can show that if a single-family household used as much water as a large factory, they would be paying the same amount as a large factory?”[/i]
Sue, my lay person’s answer to your question above is, “Yes.” I defer to a water rates lawyer for an official answer though.
Sue: I don’t have an expectation that a single family household is going to realistically reach a point where they would have to use enough water to pay a higher rate than a commercial property and if it happens consistently they would probably be advised to get a larger meter much as you would get a larger phone plan if you consistently ran over your allotted minutes.
Fairness between classes and subgroups within classes is sure to become an increasingly large issue as rates triple. I don’t think we will resolve the question with the data presented above.
Please correct me if I am wrong, but I think that Matt Williams was one of the El Macero residents who came down to speak when El Macero residents were upset about the effect of tiered rates on owners of large landscaped lots. This fairness issue has been a problem for council in the past, as when El Macero residents were unhappy with tiered rates, and that was with our relatively low water rates.
I still think that a flat rate per gallon will satisfy the most voters, and hence be most referenum and initiative-proof. For reasons that I stated yesterday, I don’t think that the fixed rates are essential.
Sue Greenwald said . . .
[i]”Please correct me if I am wrong, but I think that Matt Williams was one of the El Macero residents who came down to speak when El Macero residents were upset about the effect of tiered rates on owners of large landscaped lots. This fairness issue has been a problem for council in the past, as when El Macero residents were unhappy with tiered rates, and that was with our relatively low water rates.”[/i]
Actually Sue you are confusing Water with Sewer. Even though El Macero’s Water rates more than doubled in 2008, the Water Rate Prop 218 passed with flying colors and no expressed opposition.
Sewer is another issue, because production of sewage doesn’t have an indoor and outdoor component. The amount of sewage a residence produces is directly related to the number of people who reside in the residence. As I said in Council the “fairest” way to charge for Sewer is a flat fee times the number of residents. That is much fairer than the current system used by Davis. We can go back and confirm that on the video records of the Council meetings when the last round of Sewer Rates were adopted.
Sue Greenwald said . . .
[i]”I still think that a flat rate per gallon will satisfy the most voters, and hence be most referenum and initiative-proof. For reasons that I stated yesterday, I don’t think that the fixed rates are essential.”[/i]
I tend to agree with you that a 100% variable rate structure with a flat rate per gallon will satisfy the most voters . . . at least satisfy them until the amount of water conservation achieved by Davis’ residents exceeds the amount of conservation budgeted by Staff in coming up with the rates.
When that happens the revenue decrease due to conservation will exceed the variable cost decrease and produce a deficit. To make up the deficit, rates will have to be raised and a new Prop 218 will have to be completed for the raised rates. Either that or the water department can simply continue to run at a deficit.
Bear in mind Sue that this analysis really speaks to one issue and one issue only – whether the city could be sued retroactively for the current rates and I see no reason that such a suit would prevail. The issue of ideal rates is not addressed here.
[quote]at least satisfy them until the amount of water conservation achieved by Davis’ residents exceeds the amount of conservation budgeted by Staff in coming up with the rates.–[b]MATT WILLIAMS[/b][/quote]That’s not a problem, Matt, for reasons I described in some detail yesterday. But rather than more back and forth, I am happy to wait until after the Water Advisory Committee discusses this.
[b]@David Greenwald:[/b]I agree that the idea of a retroactive lawsuit seems far-fetched to me.
Sue, what you described yesterday was a modest conservation assumption based on Davis’ historic water consumption. However, when you compare that assumption to historic per capita water consumption of other California cities (I posted data from Monterey and Goleta yesterday as examples), the likelihood of water conservation levels that exceed the expectation are very real indeed.
With that said, I wholeheartedly agree that we should wait until after the Water Advisory Committee discusses this.
Sue Greenwald said . . .
[i]”@David Greenwald: I agree that the idea of a retroactive lawsuit seems far-fetched to me.”[/i]
Michael Harrington will be disappointed to hear you say that.
[b]@Matt Williams:[/b]I lived in coastal California, and we rented a house and did not water the yard. The plants were green and the trees healthy.
We moved into a house in Davis about 23 years go that had been a rental with a yard that hadn’t been watered. Everything was brown, and the large old street tree and backyard tree were dying. It took three summers of very heavy watering to bring the trees back to life, and they are healthy today.
Moral: In the coastal areas, summers are much, much cooler and more humid. You can conserve much more in the coastal areas without severely compromising quality of life.
Understood Sue, but our Base Use of 203 gallons per person per day compared to the Goleta figure of 90 gallons per day and the Monterey figure of 70 produces a picture that is quite extreme.
In the 100% Fixed Rates scenario that you are proposing, what target gallons per day per person would you use to set your Revenue model? Said another way, what level of gallons per day per person would be the point where more conservation beyond that level would put your rate structure into a deficit?
[quote]I still think that a flat rate per gallon will satisfy the most voters, and hence be most referenum and initiative-proof. For reasons that I stated yesterday, I don’t think that the fixed rates are essential.[/quote]
I would strongly urge you to watch the next WAC meeting. Kelly Salt, an expert attorney on Prop 218 issues will be speaking to the WAC. She wrote one and co-authored another excellent article on why tiered rates are the trend in CA and do not violate Prop 218 proportionality requirements. Both of Kelly Salt’s articles are available for you to read in the next WAC packet. It has to do with water conservation, and imposing the costs of overconsumption of water on those who are “guilty” of overuse, so that those who do conserve, particularly the low income, will not bear a disproportionate part of the costs of any overuse. But in order for the tiered rate to achieve true proportionality, water budget allocations can be formulated for a “fairer” distribution of costs. So what you have is an inclining tiered block rate with water allocation budgets for each class. I’m not saying that is the choice the WAC will go with, but it has been used very effectively in other jurisdictions. The WAC needs to explore all options, and choose what it thinks is the best rate structure for Davis citizens’ particular needs.
The next WAC meeting is this coming Thursday, March 8, @ 6:30 pm. The articles by expert water attorney Kelly Salt are included in the WAC packet, that can be accessed at the City of Davis website. Just click on City & Commissions, scroll all the way down to the bottom where committees are listed, and click on WAC. Then click on the document labeled “Articles to review by Kelly Salt”.
Admittedly off- topic… but I WANT TO GET THIS “OUT THERE’… I’ve moved “off the fence” on measure C… I’ve voted.. I urge you all, if you haven’t already, to vote. If Measure C is successful, I hope teachers, classified & administators share concessions to save those positions that will be lost even if the measure passes… if the measure does NOT pass, I hope teachers, classified & administators share concessions to save those positions that will be lost.
BTW,.. given the teachers are unionized and do the “tenure thing”, I believe the various DJUSD employees will throw the lowest ‘tenured’ folks under the proverbial bus.
Its called seniority.
Yes, it’s called “seniority”, and it does not reflect the capabilities or the skill/knowledge of the employee… it’s a ‘union’ thing…
It’s interesting that teachers are part of a state-wide union, but teachers should be protected from the troubled economy, but other public employees and the private sector should “should suck it up”… whether they belong to state-wide unions, or not…
I’ll now refrain from the off-topic..
@ Matt [quote]However, I don’t know of anyone who has paid for the meter itself. [/quote]Actually, EVERYONE pays for the original meter that is installed. Thereafter, the [i][b]replacement cost[/b][/i] is covered as part of the fixed charge.
hpierce said . . .
[i]”Actually, EVERYONE pays for the original meter that is installed. Thereafter, the replacement cost is covered as part of the fixed charge.” [/i]
hp, I will double check to be absolutely sure, but I am 99.9% sure that the City incurred a multi-million dollar expense in order to install meters City-wide a few years ago. If I am correct, paying off that incurred capital cost (both the meters themselves and their underground installation) is factored into the water rates calculation.
The reason that I am so clear on this is that I was the head of the El Macero HOA when we put our meters in (subsequent to the City’s installation), and at the time we did there was a special State of California Grant program that fully covered our $500,000 installation costs.
[b]@Elaine Musser:[/b]I would be very, very leery of the “water budget” with tiered rates proposal.
The water budget approach means that you are allowing a group to get a lower per-gallon rate because you feel they need more. But this will result and deep feelings of unfairness. Do people with large lots get lower per gallon rates because they need it? They will think so. Do large factories get a lower per-gallon rate because they need it? That would mean residential users subsidizing big business.
Tiered rates with water water budgets is very complex and will lead to endless political wrangling what the “fair” budgets will be.
We will have more than enough incentive for conservation when rates triple if we charge per gallon, and we will not have the same resentment which will come from making decisions about which group will be subsidizing the other through water budgets and tiered rates.
It is not at all clear that tiered rates will help low-income people. The more that affluent people conserve because of punitive rates, the larger the share of the burden that will fall to low income people, assuming that they are already conserving. Talking to some of my retired friends on fixed incomes, it appears that they are already conserving to the maximum extent possible. Hence, their rates will more than triple if the more affluent begin to severely curtail.
I think that tiered conservation rates make sense if they are part of a program save total costs to ratepayers by postponing the surface water program. Once we pay the enormous costs of that infrastructure, our rates will be so high that tiered rates are unnecessary, they won’t be serving the same function, and extreme conservation could push more of the burden onto low income people who are already conserving and have a tremendously negative affect on our street trees.
When I talked with a sustainability expert brought to a WRA meeting, he agreed that it was not clear whether water conservation that reduced carbon-removing vegetation was more or less sustainable than providing sufficient the water for the carbon-removing vegetation.